Top 10 reasons most (rookie) traders lose money

Top 10 reasons most (rookie) traders lose money

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When you first start trading, you can certainly expect to make numerous mistakes, even as an experienced trader you know that each day can bring challenges you didn’t expect, after all the market is unpredictable and at times even illogical. 

Most of the mistakes mentioned here are most likely made by beginners, but with time and experience, you will learn to bounce back from mistakes and losses, and I hope this list helps you to do just that.

Whether you are into the stock market or trading cryptos this list will serve you well, take a look:

1. Forgetting the tax and fees

New traders usually do not know (or understand) about the existence of fees and taxes in the trading field.

Trading fees and taxes can mount up, so if you are not careful once you add up the total of gains, losses, fees, and taxes you may end up losing money instead of making money.

2. Not having a plan/ not sticking to the plan

Trading plans are crucial to guide traders rationally, keeping them centered during the unexpected moves of the market; when traders have a plan and they stick to the plan, it can help them not to make any cognitive mistakes. A good trader knows when to enter and exit the market, the amount of capital they want to invest and the maximum amount they are willing to take.

Such plans can help you to keep better track of your tradings, especially the results which are very important to keep.

3. Not using stop-loss orders

If you do not use stop loss orders, I bet you do not have a plan. Stop losses are valuable to help you cap your tradings. Stop loss orders are intended to limit your losses (as the name suggests), not using them can lead you to losses that could have been prevented.

Rookies enjoy holding on to bad tradings, they follow the idea that “if it is that low, it can’t go down any further.” And so they hold on to it hoping to make something later without setting a plan of how much they actually are willing to lose, stop-loss order can help you stick to your plan.

Do not be patient with losing trades and use stop-loss orders. And always sell if price falls 5%-8% below what you paid. 

4. Unbalanced view of yourself: overconfidence x underestimating

Research showed that most traders are overconfident, which can lead to oversizing of positions, and needless to say overbuying can lead you to lose money. You are not invincible even if you are a successful trader.

On the other side of the spectrum some traders may feel insecure, and therefore underestimate their capability of planning and strategizing. Not being confident enough may keep you from taking the opposite direction from the crowd when needed.

Either way is unbalanced, finding a healthy mindset is key; try focusing on your strengths.

You might want to read “Top 3 psychological trading mistakes”.

5. Letting losses mount up 

Unsuccessful traders freeze when particular trading is going against them, instead of taking action to redirect focus, they keep holding on to what isn’t working in hopes that at some point it will favor them. It is important to know when to exit, much more important than knowing when to enter.

6. Following the crowd or “the experts”

Do not blindly follow the herd.

Experienced traders have a habit of exiting whenever trades get too crowded, while beginners keep on trading along even after the “money to be made” is no longer in it.

Following the crowd can lead you into so many wrong paths, you might end up buying too many projects you do not know enough about, you might end up putting all your eggs into one basket, you might end up with one mess after another.

Diversifying is key, but it must be with projects you have invested your time in, and going against the herd may be necessary at times, and if your portfolio is made up of projects you have chosen for following the herd you will end up in absolute trouble.

7. Not doing your homework

Quantify. Before investing in anything always do your homework, research the projects on your own, write it down, make it a plain vision. Technical and fundamental analysis may be needed.

8. Trading too many markets

New traders have a habit of jumping from one market to another without giving themselves the chance to become experienced in any market. You might want to check out Trading Styles.

9. Using too much leverage (margin)

Only borrow money when absolutely necessary. You shouldn’t use too much leverage for obvious reasons, you are borrowing money to make money and although there are times this is absolutely reasonable, you must know when it is too much. Study well the pros and cons of leveraging (margin trading) before choosing to do.

10. Trading by luck without much understanding of strategies

Lately I have seen some testimonies of traders who started off without any knowledge of strategies, without a plan, literally gambling with trading. Trading is not gambling.

Take classes, learn how to be a good professional trader and do not gamble with your money or else you might win for a while but when a bad day hits you it might take the shirt off your back.

Conclusion: Manage your time well, be careful who you listen to, follow no one blindly, be patient with good tradings worth your time, and do not hold on to bad trades, let it go.

You might want to read “Can you handle day trading like a champ?” 

We wish you the best of tradings!

Let us know your thoughts in the comment section. 

Do you know anyone who is a rookie in trading? Share this post with them it may help them save lots of money! 

The Winco Team


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Disclaimer: Our team works hard to bring you the best content in the cryptocurrency market, but it is only our point of view and not legal advice, and may be divergent from other opinions, so please do not make any decisions without concluding studies of your own to understand the profit possibilities and uncertainties involved at your own risk.

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